Battle for Japanese bank set to hot up

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UFJ Holdings has won a court appeal to include its trust business in a merger to create the world's largest lender, intensifying a takeover battle for a Japanese bank that has lost $US20 billion over the past three years.

The Tokyo High Court said it had overturned a lower court ruling barring the inclusion of UFJ Trust Bank in negotiations.

The ruling clears the way for Mitsubishi Tokyo to announce the terms of its merger with UFJ, which has a market value of $US22 billion ($A31 billion).

Sumitomo Mitsui, the No. 3 bank, said after the ruling it would provide more than $US4.5 billion by September 30 to shore up UFJ's finances before a merger next year.

"The onus is now on Mitsubishi Tokyo to counter Sumitomo Mitsui's offer of capital," said Nomura Securities Co analyst Akira Mizobuchi. "Sumitomo Mitsui may push harder to appeal to UFJ shareholders."

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The Japanese Government has given UFJ nine months to cut two-thirds of its ¥4.62 trillion ($A60 billion) of bad loans. The bank last month admitted to systematically forging documents to avoid inspections of its bad loans and hiding from regulators papers about problem borrowers.

"Mitsubishi Tokyo must send out more signals on how it plans to proceed with the merger, or people will start thinking it's not so eager," said T&D Asset Management's Hisakazu Amano.

A merger between UFJ and either suitor would vault the new lender above Citigroup, which has $US1.3 trillion of assets, as the world's biggest lender. A Mitsubishi Tokyo-UFJ bank would have assets of ¥188.7 trillion; a Sumitomo Mitsui-UFJ merger would hold ¥184.3 trillion of assets.